The money supply is 1,500,of which 500 is currency held by the public.Bank reserves are 200.The desired reserve-deposit ratio equals

Question

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The formula for reserve-deposit ratio is:

Reserve-deposit ratio = Bank reserves / Total deposits

We are given that:

Currency held by the public = 500
Total money supply = 1,500
Bank reserves = 200

Total deposits = Total money supply - Currency held by the public
Total deposits = 1,500 - 500
Total deposits = 1,000

Therefore, the reserve-deposit ratio is:

Reserve-deposit ratio = 200 / 1,000
Reserve-deposit ratio = 0.2 or 20%

The desired reserve-deposit ratio equals 20%.

The Money Supply Is 1,500,of Which 500 Is Currency Held